Australian Business Expectations Survey: Employment expectations at 17-year high for Q1 2017

3 November 2016

EMPLOYMENT EXPECTATIONS AT 17-YEAR HIGH FOR Q1 2017

Businesses are expecting a strong start to 2017, with expectations for profit, employment and capital investment at multi-year highs. In Dun and Bradstreet’s October Business Expectations Survey, Australian companies also flagged higher selling prices and sales for the first quarter of 2017 compared to Q1 2016.

According to Stephen Koukoulas, economics adviser to Dun and Bradstreet: "The economy is ending 2016 and moving into 2017 on a positive note. Business expectations for future sales remain upbeat and this has flowed through to a particularly buoyant outlook for profits. If these expectations are met in coming quarters, it is likely that the economy will be growing at a 3 to 3.5 per cent pace, which would represent one of the strongest growth phases for Australia since the global financial crisis."

Dun & Bradstreet's Business Expectations Index, the average of the survey's measures of Sales, Profits, Employment and Capital Investment, has jumped to 23.7 points for the March quarter of 2017, up 39.4 per cent from 17.0 points for Q4 2016 and 25.4 per cent from 18.9 points in March 2016. The preliminary Q1 2017 result is 15 points above the 10-year average of 8.7 points. The index is currently at its highest point in two years, having reached 23.9 points in Q1 2015.

"The favourable business outlook is also evident with expectations for employment and capital investment hitting multi-year highs. It would appear that the low interest rate environment, the competitive level of the Australian dollar and steady global growth outlook has fed into this optimistic outlook," Mr Koukoulas said.

"Both employment and non-mining investment have been soft spots for the economy. If the upswing in business expectations translates to stronger growth in jobs and investment, the odds favouring further interest rate cuts from the RBA will quickly recede," Mr Koukoulas added.

The Employment Expectations Index for Q1 2017 climbed to 18.9 points, up from 13.0 points in the final quarter of 2016 and 12.0 points in the previous corresponding period. Some 25.3 per cent of businesses said they expect to employ more staff in Q1 2017 compared to Q1 2016, while 6.4 per cent said they would employ fewer staff. The result marks a 17-year peak for employment expectations, with the index at its highest point since Q2 2000, when it hit 24.5 points.

Plans for capital investment have bounced back, with the Capital Investment Expectations Index more than doubling from 7.9 points in the December quarter 2016 to 16.0 points for the March quarter 2017 – its highest point since hitting 17.4 points in Q4 2010. For the March quarter 2017, 21.5 per cent of businesses said they would increase capital investment, compared to the 5.5 per cent who said they would rein in capital investment spending. Of the seven industries surveyed, only the Retail industry flagged lower capital investment in Q1 2017 compared to Q4 2016.

The Profit Expectations Index reached 28.7 points, up from 17.1 points in the previous quarter and 18.5 points a year earlier. The Profit Expectations Index is now at its highest point in six years, after reaching 29.7 points in Q1 2011. Some 39.7 per cent of companies expect higher profits in Q1 2017 compared to Q1 2016, while 11.0 per cent expect lower profits.

Meanwhile, the Selling Prices Expectations Index leapt from 9.3 points in the final quarter of 2016 to 17.8 points for the first quarter for 2017.

"The uptick in expected selling prices suggests that inflation may be near the low point for the cycle. Last week’s official inflation data confirmed a moderate uptick in quarterly inflation, albeit from a very low base. If expected selling price increases as shown in the survey show up in actual selling prices over the next few quarters, inflation may surprise on the upside which would feed into Reserve Bank deliberation about monetary policy and official interest rates," Mr Koukoulas said.

Of the seven industries surveyed, Construction was the only industry to see a decline in overall business expectations for the first quarter of 2017. Its individual Business Expectation Index slipped from 9.8 points to 6.6 points, driven by a slump in sales expectations. Construction’s Sales Expectations Index plunged to 1.8 points for the March quarter of 2017, down from 20.6 points in the December quarter and 23.7 points a year earlier. Some 17.5 per cent of Construction companies are anticipating an increase in sales in the March quarter of 2017, compared to the 15.7 per cent who expect a decrease.

The Construction sector also saw a drop-off in profit expectations: its Profit Expectations Index fell to 7.8 points from 14.4 points in Q4 2016 and 13.3 points in Q1 2016. For the first quarter of 2017, 24.2 per cent of Construction businesses forecast an increase in profits, while 16.4 per cent expect a decrease.

The sharp decline in expected sales and profits for the Construction industry reflects the results of the September survey, which showed that Construction businesses were the least optimistic about the outcome of July’s federal election. In the current survey, when questioned about optimism regarding business growth in 2017, the Construction industry emerged as the least optimistic of all industries.

By contrast, both the Manufacturing and Wholesale sectors saw increases across all components (Sales, Employment, Profits, Selling Prices and Capital Investment). The Manufacturing industry had the strongest improvement in expectations for Q1 2017 compared to Q4 2016, with its individual Business Expectations Index almost doubling from 18.6 points to 35.7 points. The Wholesale Business Expectations Index was up 53.6 per cent to 29.5 points.

Looking back on the September quarter of 2016, businesses reported increased sales, profits, employment, selling prices and capital investment in Q3 2016 compared to Q3 2015. The Business Actuals Index for the September quarter was 11.0 points, up from 8.9 points in the June quarter and on par with 11.0 points in the September quarter of 2015. Only the Retail and Services sectors’ individual Business Actuals Indices for the September quarter fell compared to the June quarter: the Retail Business Actuals Index was 3.3 points, down from 7.3 points, while Services slipped from 11.1 points to 9.7 points.

Moving into the new year, businesses are generally upbeat about business growth: 63.4 per cent of all firms surveyed said they were more optimistic about growing their business in 2017 compared to 2016. Some 24.8 per cent were less optimistic and 11.9 per cent were unsure. Manufacturers were the most upbeat, with 78.7 per cent saying they were more optimistic, compared to 16.4 per cent who were less optimistic. By comparison, the Finance, Insurance and Real Estate industry had a more subdued outlook, with just 52.5 per cent feeling optimistic about business growth in 2017 compared to 2016, compared to 39.0 per cent who were not. Construction companies returned similar scores: 49.2 per cent are more optimistic compared to 35.6 per cent who are less optimistic.

Established in 1887, Dun & Bradstreet is Australia and New Zealand's longest-established credit information bureau. Backed by its extensive database, Dun & Bradstreet helps businesses to make informed credit decisions, and consumers to access personal credit information. Dun & Bradstreet works across the entire credit lifecycle to deliver data-driven solutions in sales and marketing, credit reporting and debt management. Through analysis of financial and behavioural information, Dun & Bradstreet also provides current and predictive assessments of the economy, business conditions and credit activity.